I’ve been a bit under the weather recently and, as you’re about to read, have had perhaps too much time on my hands. Thus we now have, “The Great Tree Chapter 2”. A few months ago I shared a little tale titled “The Great Tree”, an analogy for my view on government intervention and the economy.

I’m afraid some of you may not appreciate the message within this next phase of the story. But I assure you it is in no way my intent to discount any unfortunate circumstance that may put a fellow citizen in a position to need government assistance. Quite the contrary, I believe it is indeed our duty to care for those who are unable, through no fault of their own, to care for themselves.

And it is every bit as much our duty to protect the rights of those who, by the very sweat of their brow, have built profitable, job producing businesses. The business sector bearing the financial brunt of the myriad government programs will in no way help the employment picture and will indeed result in higher costs of goods and services to the consumer. We should instead be exploring ways to stimulate business, or, at a minimum, get out of its way. Which, in my humble opinion, is how you create jobs, increase revenue, and balance budgets (along with reduced government spending). It is truly that simple.

We must also make it very clear to our elected officials (on both sides of the aisle) that the length of their careers will be largely predicated upon their commitment to supporting our right to work, to produce, and to invest. We mustn’t allow statements like “we have to suspend free-market capitalism in order to save free-market capitalism” (perhaps out of context here, but frightening words nonetheless), as our previous president made last fall, to go unattended.

And while Chapter 2 ends on a dire note, worry not, for our story is far from over.

Have a wonderful week, and please pardon my ranting…

Marty
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The Great Tree: Chapter 2

As the years unfolded in the land of the Great Tree the people grew by legions and their lives grew complicated. The wise foretold of a coming day when the number of mouths to feed would far exceed, in spite of man’s intervention, the Great Tree’s ability to sustain them. Fear gripped the hearts of all the people – yet even the threat of famine deterred not the gluttons (those who would not store) from consuming every morsel they could gather.

It was therefore declared that for the good of the community and the survival of the Tree, those desiring to pioneer beyond the shelter and create orchards of their own, would be allowed to do so and retain the bounty of their harvests for themselves and their families.

Those eager to venture past the perimeter however, given their history, would not trust their leaders’ intent. They feared their farms would ultimately be subject to the government’s confiscatory practices. Yet, in spite of all historic precedent, in the face of an otherwise dire fate, their leaders’ aims were indeed virtuous.

As necessity then dictated, to inspire the people’s trust and to advance an entrepreneurial spirit, a new constitution, guaranteeing certain inalienable rights and protecting every citizen’s freedom to work and produce on his own behalf, was drafted and unanimously ratified. The old leaders stepped down as new officials, sworn to defend and enforce the covenants set forth in the constitution (its authors in fact), were duly elected by the people.

So it came to pass that those willing to dirty their hands, to extract the seeds from the fruit of the Great Tree, dig the holes, sow the seeds, water and fertilize the soil and ultimately profit from their own harvests, would be free to leave the shade of their once Great Giver in favor of their own bountiful orchards – conditioned only upon the paying of a small duty to the government. This duty amounted to a modest percentage of their annual yield and would fund the enforcement of the rules of law that protected their rights to build the lives of their dreams, as well as provide for certain essential services to the greater community.

While there were indeed many of the Land’s people who found satisfaction in these pursuits, there remained others however who possessed not the desire to produce their own good fortune, who chose instead to continue to survive on whatever the Great Tree would bestow upon them.

Henceforth, while the industrious ones would no longer take from the Tree’s limbs, her bounty was sufficient to continue to feed those who remained for some time to come. As the years passed however, the shade beneath her leaves grew crowded once again. Crowded by men and women who lacked either the capacity (the aged and the disabled) or the desire to venture beyond the great canopy to provide for themselves.

As the division in terms of the quality of life among those who strove for better and those who did not widened, a distinct envy began to develop among the self-proclaimed have-nots toward the strivers. The shade-dwellers would contend that, although (except for the disabled) their lot was clearly the result of their lack of initiative, the system was somehow unfair. That there simply should not be such a division, that in the interest of the social good, all manner of men should enjoy an equal share of the Earth’s bounty without regard to their contribution to the production and harvesting of such.

As the shade-dwelling masses grew, their influence upon the once great government grew strong. For all manner of men, pioneers and shade-seekers alike were rightfully endowed with the right to vote. And as the powers (and personal benefits) of political office were expanded, the position of policymaker became a highly coveted one indeed. So much so that the men and women campaigning for these positions would, regardless of their own ideals, cater to the group(s) they believed possessed the requisite votes to win them their desired posts.

And so it came to pass that a new era was born, an era where political gain took precedent over the legitimate needs of a growing society – and the shade-dwellers, now great in number, became a most powerful political force. Prospective politicians would stand within the crowded shelter of the Great Tree and pledge that while in office, they would increase taxation on those who, by virtue of their hard work and creativity, enjoyed lifestyles beyond what the shade-dwellers could ever imagine. As if the very spirit that once saved their land from ruin, could now be deemed selfish, greedy and deserving of punishment through excessive taxation.

Henceforth, under the guise of fairness, the self-interested politicians would commit their efforts to the redistribution of the land’s wealth. Yes, the confiscated booty would be divided among those who, by contributing nothing more than their votes, were deemed deserving of such.

The entrepreneurs, the pioneers who dared to journey beyond the shade to build a better life and to relieve the Tree of her burden were perplexed by the chastisement being brought to bear upon them. The rule of law that once made possible and promoted their efforts had, at the hands of the politically ambitious, been manipulated and indeed corrupted to the point where the more successful their labors, the disproportionately greater the duties (taxes, regulatory fees, licenses, etc., etc.) they would be forced to pay. They had become villains. In the government’s eyes they had enjoyed too much success and would hence pay dearly for their perceived sins.

Law abiding as they were, the industrious, while they disagreed in principle, would nonetheless pay the higher taxes and fees levied against them. Yet they remained keenly aware of two fundamental truths; that they, not the policymakers, were responsible for the success of their great society, and that the maintaining of their personal liberties would lie, as perhaps never before, in their own hands. And they knew therefore that a great day of reckoning was soon to come.

To Be Continued……………………………..

Last Monday the Dow tumbled 180 points, in spite of some upbeat economic news. So why, if the news was good, did the market take such a hit? Well some “experts” would tell you it was simply because it was the first day of September. You see September suffers from the reputation of having been the worst month of the year for stock markets past. The average return for U.S. equities for the ninth month (the only month in fact to have a negative average return) has been a minus 1+%. The market has only posted gains in 34% of all the Septembers since 1954.

I’ve had a handful of clients recently inquire as to whether they should bail out of the market just for the month, to catch the for sure drop that comes every September. I’m serious, “the for sure drop that comes every September”. While a 66% probability is worth noting, it’s just a wee bit shy of “for sure”, don’t you think? I mean, that’s about how well Shaq did at the free throw line last year. And I assure you, when he stepped to the stripe, nobody on the planet was thinking ‘oh yeah, he’s ‘for sure’ gonna make it’.

Now for all I know this shleprock of months may very well bring that 10% correction everyone’s been calling for (since about June by the way), just because it’s September. After all, that has to be why the market dumped the first day of the month, in the midst of good economic news, right? Well maybe, but September also happens to mark the last month of many mutual funds’ fiscal year end, and it appears that there may have been a considerable amount of tax loss selling going on to offset some of this year’s realized gains (keeping funds from having to make taxable distributions to their still shell-shocked shareholders).

Yesterday evening Bloomberg Television aired a special subtitled “Predicting the Future”. The program featured a half dozen or so brainiac second-guessers who waded in on everything from where the economy’s headed to whether Ben Bernanke deserves reappointment. And as you might imagine the prognostications were all over the board. As I’ve suggested here before, when you gather together a group of similarly credentialed individuals, with off the chart IQs, who you know going in won’t agree on the very topics they each advertise their expertise in, what you get is an amazing display of personalities, egos if you will. And you come out less sure of anything financial than you were going in.

So for those of you who absolutely must know the future, there’s no need to catch the re-run of last night’s show. I’ll give you the most accurate forecast you’ll find anywhere. This is the one you can count on, and you can quote me on this all day long. Here goes:

“The market will indeed experience a 10% correction. There is indeed a raging bull market in our future. There is indeed a nightmarish bear market in our future. There is another recession coming. There is another expansion coming. The party in the majority in Washington will not always be in the majority. If we head in the wrong direction, we’ll change direction. You will see negatives on your brokerage statements. You will see positives on your brokerage statements. More crooks will get caught. More honest businesswomen and men will get filthy rich. More banks will fail, even more will survive. Interest rates will go up. Interest rates will go down. Inflation is coming. Deflation is coming. Unemployment will get worse. Unemployment will get better. Your home’s value will rise. Your home’s value will fall.”

The very bottom line is this: Free-Market Capitalism in America, in the end, will reign supreme. It’s the system that works!

Yours’ and our chief concern has nothing to do with the timing of all that I assure you will come; it has everything to do with making sure your portfolio’s allocation is consistent with your objectives, your time horizon and, above all, with what your nervous system can ultimately withstand.